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Flight to safety for lenders amid China property woes


Lenders are expected to stay cautious towards China’s cash-strapped property sector as Shenzhen-based developer Kaisa’s debt woes continue to rattle the market. But they will continue to lend to larger mainland companies.

“Companies from China will remain a major source of business for loan markets this year,” said Sonia Li, head of syndicated loans for Asia at JP Morgan. “But you will see a flight to quality for Chinese borrowers, particularly in light of what is happening in the real estate sector. Lenders will be very cautious to the real estate sector,” she added.

China has become a bigger part of Asia’s loan markets. According to Thomson Reuters data, China was the largest driver for loan growth in the Asia-Pacific region last year, accounting for $141.3 billion in loan volume or about 27% of the total in the region. Infrastructure, project and real estate deals accounted for slightly more than two-thirds of that volume.

Given the increasing exposure banks have to Chinese property, a protracted downturn could have a knock-on effect on the banks. “A lot of mid-sized and big Chinese banks as well as foreign banks have exposure to the China property sector. A big downturn in China real estate market would affect everyone but the mainland banks have the most exposure to the property market,” said Christine Kuo, senior credit officer at Moody’s.

For now, however, the rating agency views Kaisa’s problems as being unique to the company and, at a briefing in Hong Kong on Tuesday, Simon Wong, Moody’s senior credit officer, told reporters that he didn’t think the Shenzhen’s developer’s problems would pose a systemic risk to the sector.

“If the Kaisa case is resolved satisfactorily, such as another developer coming in and potentially buying Kaisa’s assets at fair market value, I think that would also help to ease investors’ concerns,” Wong told reporters.


Kaisa given respite but is still in the doghouse Kaisa default triggers broader loan worries Agile woe compounds China’s property problems Cofco Land plans up to $500m placement Loan Week, February 6-12

For now though, investors and lenders are giving the sector a wide berth.

Kaisa had been subject to unexplained bans imposed by the Shenzhen government on the sale of its property projects in Shenzhen. Reports had been circulating that other developers including Fantasia and China Overseas Land & Investment have faced similar bans but the companies have since clarified that the blocked sales are due to administrative procedures by the authorities, and not violations by the companies.

Lenders could also turn wary towards small-cap companies. “China is an important market but we expect more large-cap and higher grade companies this year compared to last year given the concerns over the mid-cap sector,” said Amit Khattar, head of syndicated loans for Asia at Deutsche Bank.

Subordination risk

Kaisa’s problems expose the risks that offshore lenders face. It had initially defaulted on a $51 million loan with HSBC. While it subsequently got a waiver from the British lender, other creditors have frozen some of its onshore bank accounts, and if it came down to a default, onshore lenders would get first dibs on the assets.

Offshore lenders are often subordinated to mainland lenders as the loans are typically issued through offshore holding companies, using the so-called red chip structure.

China’s State Administration of Foreign Exchange (Safe) has made moves to take away some of that subordination risk and, in July last year, relaxed the rules to allow mainland companies to use onshore assets as collateral when raising funds offshore. However, there are restrictions, and Safe has made it clear that the proceeds have to be kept offshore.

“The change in Safe rules means that offshore lenders can get senior secured access to Chinese companies rather than just a red chip structure,” said Khattar. “It is a meaningful development but the number of companies using this has been limited by restrictions over the use of proceeds,” he added.

Lenders have been comfortable lending to offshore holding companies, provided they are perceived to be a strong credit. For example, smartphone company Xiaomi last year tested the market with a debut $1 billion loan, which attracted 29 lenders. Xiaomi is cash rich, with no onshore borrowings.

However, weaker companies are expected to come under more scrutiny now. “Lenders have become more comfortable with loans using offshore holding company structures,” said Deutsche Bank’s Khattar. “But they will be more wary about certain credits,” he added.

This year could be a more challenging one for mainland companies as Taiwanese lenders are keen to keep their exposure to mainland companies down, and could look to diversify to Indian or Southeast Asian companies. “Taiwanese banks were big investors for China loans in the past but they have pretty tight China limits at the moment,” said JP Morgan’s Li.

But amid ongoing market volatility, more companies could start tapping the loan markets as bond yields have risen. “Bond market volatility specially in the high yield market could see more high yield issuers trying to access the loan markets in 2015,” said Khattar.

¬ Haymarket Media Limited. All rights reserved.

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Star Bulk’s liquidity and cash flow


Star Bulk has positive 3Q14 earnings and strong fleet after acquisitions (Part 11 of 15)

(Continued from Part 10)

Star Bulk’s net cash operating activities

In this part of the series, we’ll discuss Star Bulk Carriers Corp.’s (SBLK) cash flow numbers given the company’s rapid expansion of its fleet size through acquisitions and other related developments. Investing and financing activities have reflected significant movements, while operating activities were affected by the company’s reported net loss. Star Bulk has industry peers (SEA) such as Diana Shipping Inc. (DSX), Knightsbridge Shipping Ltd (VLCCF), Navios Maritime Holdings Inc. (NM), and Eagle Bulk Shipping Inc. (EGLE).

For the nine months ended September 30, 2014, Star Bulk Carriers Corp. (SBLK) recorded net cash provided by operating activities of $7.7 million compared to $22.4 million in the year-ago period. The time charter equivalent (or TCE) rate for the same period declined to $12,813 from $14,414 in the year-ago period. The dip in net cash for operating activities was led by the net loss recorded by Star Bulk compared to net income in the year-ago period. Also, there was a negative movement in working capital of $6.3 million during the first nine months of 2014 compared to a positive movement of $3.4 million during the first nine months of 2013.

Net cash investing activities

Star Bulk’s net cash used in investing activities for the nine months ended September 30, 2014 and 2013 stood at $144.5 million and $9.9 million, respectively. Net cash used in investing activities for the 2014 period consisted of $31.4 million in advances for the company’s newbuilding vessels compared to $29.8 million in the same period a year ago. Also, the total acquisition of secondhand vessels, including Excel’s vessels, and fixed assets stood at $198.9 million.

Star Bulk recorded a net increase of $10.8 million in restricted cash compared to a decrease of $7.6 million in the year-ago period. Hull and machinery insurance proceeds amounted to $0.6 million compared to $4 million in the year-ago period. Also, the company assumed $96.3 million cash as part of the Ocean Bulk and the Pappas Companies acquisitions.

Net cash financing activities

Star Bulk’s net cash provided by financing activities for the nine months ended September 30, 2014, stood at $176.8 compared to $48.0 million in the year-ago period. For the nine months ended September 30, 2014, net cash provided by financing activities consisted of loan proceeds of $139.0 million from post-delivery financing of newbuilding vessels and $59.8 million drawn under the Excel Vessel Bridge Facility for the financing of the acquisition of the Excel vessels, as well as financing fees amounting to $0.9 million and loan installment payments amounting to $21.2 million.

Continue to Part 12

Browse this series on Market Realist:

Part 1 – Overview: Star Bulk Carriers’ earnings and fleetPart 2 – Perfect timing for Star Bulk’s fleet acquisitionPart 3 – A growing fleet increases Star Bulk’s voyage revenuesFinance […]

DryShips Seeks Bank Loan as $700 Million Debt Comes Due

DryShips Inc. (DRYS), the drybulk carrier that faces a potential funding shortfall as $700 million of debt comes due in less than two months, is seeking a bank loan after a bond sale fell through over the weekend.

The shipper would use the loan in addition to sources that include a $350 million financing from ABN Amro Group NV, $100 million available in a credit line from Nordea Bank AB, cash on hand as well as a funding commitment from Chief Executive Officer George Economou, according to two people with knowledge of the company’s plans, who asked not to be identified because the talks are private.

The conveyer of dry goods such as iron ore, coal and grain pulled the bond offering to pay its convertible note due Dec. 1 after funding costs for speculative-grade borrowers surged to the highest in a year and potential buyers demanded at least 12 percent interest. The financing deal comes after DryShips, which also has tanker and offshore drilling units, said as of June it was negotiating with creditors to get waivers or restructure some of its $6 billion of debt that ran afoul of rules governing loan agreements.

“It’s a perfect storm of the capital markets being shut and oil going down,” Andrew Casella, an equity analyst at Imperial Capital LLC that cut DryShips’s shares to “underperform” yesterday, said in a telephone interview. “These two things blew up at the same time. And I am shocked they waited this long to refinance.”

Pulled Offering

DryShips canceled a $700 million offering of secured notes over the weekend that would have refinanced the convertible after potential investors demanded a sweetened yield, one of the people said. The average yield on speculative-grade bonds rose to 6.54 percent Oct. 10, the highest level in a year, according to Bank of America Merrill Lynch Index (BDIY) data.

“We had a fully covered book, but we consider the terms and structure offered as expensive and therefore not in the best interests of our shareholders,” Ziad Nakhleh, chief financial officer of DryShips, said in an e-mailed statement. “We currently intend to refinance the convertible notes due on Dec. 1 using funds from a number of alternative options at our disposal,” including the funding from ABN Amro and Nordea, he said.

Contracting Market

Shares of the carrier plunged 21 percent to $1.47 yesterday after it announced the sale had been canceled in an Oct. 12 statement. DryShips’s $700 million of 5 percent convertible notes were quoted down 2.5 cents to 90.5 cents on the dollar at 11:05 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The new loan DryShips is seeking would be secured by assets tied to its Ocean Rig UDW Inc. unit, one of the people said. The bridge financing from ABN Amro will have a one-year maturity, according to an Aug. 6 U.S. Securities and Exchange filing.

DryShips has lost money in the last three years as the shipping market has contracted by 59 percent since Dec. 12. The Baltic Dry Index, a measure of commodity shipping costs by the London-based Baltic Exchange, fell 0.9 percent to 954 points yesterday, down from 2,337 on Dec. 12, according to data compiled by Bloomberg.

The company had $459 million in cash and equivalents as of June 30, Bloomberg data show. It’s current liabilities exceeded its current assets by $1 billion on that date, according to the filing.

Covenant Violations

“Cash expected to be generated from operations assuming that current market charter hire rates would prevail in the 12-month period ending June 30, 2015, will not be sufficient to cover the company’s unfinanced capital commitments,” according to the filing.

DryShips fell out of compliance with rules governing loan agreements relating to its shipping segment, according to the Aug. 6 SEC filing. “These breaches constitute events of default and may result in the lenders requiring immediate repayment of the loans,” according to the filing.

While the company is current on all its debt payments, “for the past several years, we have reported certain technical breaches in some of our financial covenants, something which has been an industry-wide phenomenon during the challenging shipping markets,” DryShips CFO Nakhleh said in the statement. “Certain of these breaches have since returned into compliance as asset values have increased, certain others have been cured with waivers while others remain outstanding.”

Even with financing to repay the $700 million convertible due December, the company will have to raise $500 million for loan amortization payments over the next two years, according to Casella.

“The company needs to come up with sticky capital soon to get the refinancing deal done in order to avoid a downward spiral of both DryShips’s and Ocean Rigs’s stock prices,” said Casella. “Then there is a longer-term question: how are they going to find the money for their operations and chunky loan amortizations that are coming up in the next two years?”

(An earlier version of this story was corrected because it misspelled the CFO’s name.)

To contact the reporter on this story: Jodi Xu in New York at

To contact the editors responsible for this story: Shannon D. Harrington at Richard Bravo, Mitchell Martin

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Walmart to Offer Payday Loans to Employees :ohhh: | Sports, Hip …

Image walmart_5-e1386572288411-257x176.jpg

Dec 10, 2013
Company Creates Lender Instead of Raising Pay

Walmart announced plans today to create its own payday loan business to support its financially strapped employees.

In a press release posted on its website the nation’s largest retailer said that it decided to launch the service after hearing complaints that workers often have trouble paying their monthly bills.

“It has recently come to our attention that our valuable associates sometimes just can’t make ends meet,” the statement reads, “That’s why we’re creating Walmart CashNow, a payday lender available exclusively to Walmart’s 1 million hourly employees.

“CashNow will help our associates get cash when they need it most at a competitive interest rate. Finally they can borrow money to pay for things like rent, gasoline, food, medical bills and child care.

“Economic studies have consistently shown that access to credit is one of the driving forces in allowing the working poor to escape poverty. By providing these loans, Walmart is helping our associates reach the next level of success.”

Always Low Wages
Payday loans are small, short-term loans usually used to help low-income workers meet expenses between their paychecks. They have become ubiquitous in recent years, but are often criticized for their high interest rates and predatory marketing practices.

Although Walmart says it is protecting its employees by creating the new lender, it admits that CashNow is also expected to be highly profitable.

“I mean we got a million people who would give anything to be able to pay their bills on time,” says Walmart’s human resources chief ,”Obviously, our first thought was there is huge money to be made off of this. We estimate that at an interest rate of 2900% APR we can bring in $10 billion a year loaning money to our own workers.

“But the best part is that because we already employ them, our associates will also be able to work off the interest rather than pay in cash. That’s a win-win. Financial flexibility for them, and cheap labor for us.”

“This is completely outrageous!” says veteran union leader Edward Asner, “Employees will now be indebted to their employer with no possible way out. That is not a job, it’s slavery. If they’re so worried about their workers not being able to pay their bills, why don’t they give them a raise?”

Not surprisingly members of the Walton family – who remain major shareholders in Walmart – disagree with that analysis.

“Look, no one is forcing anyone to do anything,” says Jim Walton, who inherited his fortune from Walmart founder Sam Walton, “You don’t have to work here and you don’t have to get an advanced pay day loan with a reasonable interest rate. These folks simply need to be more responsible in regards to spending their money.

“For example, when my family flew down to Miami for a nice get-a-way weekend last week, we could have booked several very nice executive suites at the Fontainebleau. But we didn’t. We got regular suites facing the ocean and ordered the crab instead of the lobster from room service.

“To be honest, I think a lot of these folks just need lessons on living a frugal lifestyle. I mean do you really need food for yourself and for your dog? Do you really need to be treating both your heart disease and your hemorrhoids?

“Life is all about choices. And I think our employees need to start making better ones. Take this hotel for instance. I would highly recommend our associates check into a standard cityview room. It starts at only $1200 a night.”


Fitch Affirms CSFB 2006-TFL2


Fitch Ratings has affirmed all classes of Credit Suisse First Boston Mortgage Securities Corp., series 2006-TFL2. Fitch’s performance expectation incorporates prospective views regarding commercial real estate market value and cash flow declines. A detailed list of rating actions follows at the end of this release.


The affirmations are the result of overall stable performance since Fitch’s last rating action. Under Fitch’s methodology, approximately 58.4% of the pool is modeled to default in the base case stress scenario, defined as the ‘B’ stress. In this scenario, the modeled average cash flow decline is 5%. To determine a sustainable Fitch cash flow and stressed value, Fitch analyzed servicer-reported operating statements and rent rolls, updated property valuations, and recent sales comparisons. Based on improving loan performance as well as greater stability in commercial real estate fundamentals (as compared to the recessionary years), Fitch estimates the average recoveries on the pooled loans will be greater than 80% in the base case.

The transaction on a pooled level is collateralized by three loans, all of which are hospitality assets. The Kerzner Portfolio (75.1%) and NH Krystal Hotel portfolio (8.2%) have loan extensions through 2014. The JW Marriott Starr Pass (16.7%) remains in maturity default. The transaction’s final rated maturity date is October 2021.

The largest loan in the pool is the Kerzner Portfolio, secured by a diverse portfolio of real estate. The main collateral interests consist of: 3,023-key Atlantis Resort and casino, Paradise Island; 600-room all-suite hotel tower, 495-unit condominium hotel; 40 acres of water attractions; 106-key One & Only Ocean Club and 18-hole Ocean Club Golf Course; water treatment and desalinization facility; 63-slip Marina at Atlantis and associated retail at Marina Village.

As of year-end (YE) 2012 the portfolio reported an NCF DSCR of 6.02x for the pooled debt. While operating cash flow for the collateral is below expectations from issuance, YE 2012 net operating income (NOI) had increased 14% from YE 2011. A recent value estimate indicates the collective value of the collateral would result in full repayment of the rated debt. A recent modification of the loan included an extension of the loan’s final maturity for three years through September 2014.

The JW Marriott Starr Pass consists of a 575-room full-service hotel and a 27-hole Arnold Palmer-designed championship golf course, located in Tucson, AZ. The loan has remained in special servicing since its initial transfer for imminent default in April 2010. The loan has underperformed expectations from issuance, and the Tucson hotel market remains soft relative to the recovery experienced by the greater U.S. lodging market. A receiver remains in place at the property after the appointment in late 2011. The special servicer continues to explore a number of avenues in resolution strategy.

The CSFB 2006-TFL2 trust also includes the non-pooled Sava/Fundamental Portfolio. The loan is secured by two portfolios of health care facilities: the Sava Portfolio (86% of allocated loan amount) and the Fundamental Portfolio (14%). The collateral is comprised of over 150 skilled nursing facilities; mixed-use facilities, long-term care hospitals, and assisted living. The properties are located in over 20 states, the largest concentration of which lies in Texas. The loan, which has demonstrated stable performance since issuance, has been in the process of extension, which is expected to close in June. The master servicer is processing the extension.


The Negative Outlooks on the Sava rake classes SV-H, SV-J, and SV-K are due to uncertainties surrounding federal health care policy and the potential changes that may take place under the current administration. Downgrades are possible with a decline in collateral performance.

No rating changes are anticipated on the classes with stable outlooks. Downgrades to classes rated ‘CCCsf’ are possible with an increase in expected losses.

Fitch affirms the following classes:

–$211.3 million class A-2 at ‘AAAsf’; Outlook Stable;

–$41 million class B at ‘AAAsf’; Outlook Stable;

–$41 million class C at ‘AAAsf’; Outlook Stable;

–$33 million class D at ‘AAsf’; Outlook Stable;

–$25 million class E at ‘Asf’; Outlook Stable;

–$19 million class F at ‘BBB-sf’; Outlook Stable;

–$19 million class G at ‘BBsf’; Outlooks Stable;

–$19 million class H at ‘CCCsf’; RE 100%;

–$20 million class J at ‘CCCsf’; RE 100%;

–$22 million class K at ‘CCCsf’; RE 100%;

–$16.1 million class L at ‘Dsf’; RE 95%;

–$56.2 million class KER-A at ‘A-sf’; Outlook Stable;

–$40 million class KER-B at ‘BBBsf’; Outlook Stable;

–$35 million class KER-C at ‘BBBsf’; Outlook Stable;

–$43.1 million class KER-D at ‘BBB-sf’; Outlook Stable;

–$43.5 million class KER-E at ‘BBsf’; Outlook Stable;

–$57.8 million class KER-F at ‘CCCsf’; RE 100%;

–$3.1 million class NHK-A at ‘CCCsf’; RE 100%.

Fitch affirms the following classes, which are non-pooled components of the trust, revises Outlooks as indicated:

–$375.7 million class SV-A1 at ‘AAAsf’; Outlook Stable;

–$126 million class SV-A2 at ‘AAAsf’; Outlook Stable;

–$61 million class SV-B at ‘AA+sf’; Outlook Stable;

–$31 million class SV-C at ‘AAsf’; Outlook Stable;

–$31 million class SV-D at ‘AA-sf’; Outlook Stable;

–$30 million class SV-E at ‘A+sf’; Outlook Stable;

–$31 million class SV-F at ‘Asf’; Outlook Stable;

–$30 million class SV-G at ‘A-sf’; Outlook Stable;

–$54 million class SV-H at ‘BBB+sf’; Outlook to Negative from Stable;

–$34 million class SV-J at ‘BBBsf’; Outlook to Negative from Stable;

–$39 million class SV-K at ‘BBsf’; Outlook to Negative from Stable.

Additional information is available at ‘‘.

Applicable Criteria and Related Research:

–‘Global Structured Finance Rating Criteria’ (May 24, 2013);

–‘Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions’ (Sept. 21, 2012).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions

Additional Disclosure

Solicitation Status



Fitch Ratings

Primary Analyst

Chris Bushart, +1 212-908-0606

Senior Director

Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004


Committee Chairperson

Mary MacNeill, +1 212-908-0785

Managing Director


Media Relations:

Sandro Scenga, +1 212-908-0278 […]